The Bank of England and HM Treasury have issued a joint statement outlining the next steps on the exploration of a UK Central Bank Digital Currency (CBDC). This statement is welcomed and indicates the UK’s commitment to pursuing and potentially implementing digital currencies. Numerous other countries, including Nigeria and the Bahamas, have adopted digital currencies, with Nigeria’s eNaira having pilot launched on October 25th.
Progress so far
This statement follows a discussion paper published by the Bank of England in March 2020, which sought to initiate a dialogue about the various merits of introducing a CBDC in the UK and the associated opportunities and risks. In the paper, the Bank of England offered a useful definition of CBDC, and outlined its purpose as a retail based electronic form of central bank money that could be used more widely by households and businesses to carry out payment transactions and store value – akin to a digital version of a traditional banknote. The Bank of England also set out the proposed intended uses of a CBDC, including, but not limited to, a range of household to business payments (such as for bills), household to household payments (such as for gifts and rent), and business to business payments (such as for goods and services from suppliers).
Key elements of the platform model might include:
the Central Bank core ledger;
payment interface providers connecting to the platform through APIs (Application Programming Interface); and
so-called “overlay services”.
For more information on the content of the 2020 discussion paper, please see our Law-Now article on the topic.
Future consultation paper and progress
Now, the Bank of England and HM Treasury are seeking to develop and further explore these ideas through the launch of a consultation in 2022. The consultation seeks to set out in full their assessment of the case for a UK CBDC, as well as examining the various issues in consideration. Focus will be on the potential high level design features, benefits, and implications for users and businesses. It is the Bank’s hope that this consultation will inform policy development over the coming years and set the agenda for CBDC implementation in the UK.
However, it is crucial to note that these discussions at this stage remain probative. There has been no decision made on the official implementation of a UK CBDC. It is, however, promising to see the involvement of relevant stakeholders from across industries, civil society, and academia through the establishment of the Engagement and Technology Forums. It will be interesting to see the technical and business input these stakeholders can contribute to the consultation.
Following the consultation, the authorities will be expected to form a decision on the appropriateness of moving to a ‘development’ phase which would be expected to span several years. A technical specification is further expected to follow the consultation and explore the operational, design, and technical aspects of the CBDC.
We are pleased to see progress being made in this area, and would encourage active participation and contribution to the discussion to enable a comprehensive and robust consultation.
Co-authored by Precious Akegbejo